Tax changes 2019

2019 tax changes

The Hungarian Parliament has approved the 2019 tax changes. The most important changes will be seen at fringe benefits and dividend taxation.

In line with the original intentions the parliament approved the bill on taxation changes effective from 2019.

Dividend taxation goes under social security tax

The rate of the tax gets maintained at 19.5 percent though there were intentions to reduce to a possible 17.5 percent.
Several types of incomes that previously had been governed by healt-contribution rules will be subject of social security tax from next year.
This inlcudes:
– sole entrepreniour’s income withdrawal
– income from security rental
– dividend
– exchange gain incomes

This will add serious tax burden for those company owners who want to withdraw dividend. Up till the end of 2018 dividend payment to an insured person attracts 14 percent healt-care contribution which is capped at HUF 450’000 a year.

What will change from next year in dividend taxation?
Those who will pay dividend to an insured person will pay 19.5 percent social security tax instead of the prior health-care contribution.
The social security tax payment will be capped at a different level.
Tax on the above mentioned income types will need to be paid until the income of the private person will have reached 24x the minimum salary. At this time the amount of next year’s minimum salary is unknown.

Let’s see some examples.
Let’s assume that the owner of the company is insured in Hungary, and has salary of HUF 150’000, 200’000 or 300’000 gross.
From his company he pays HUF 5’000’000 dividend on 1 July (after 6 months’ employment in the year). Also let’s take HUF 150’000 gross as minimum salary in 2019.

Taxation will develop accordingly:

Scenario 1 Scenario 2 Scenario 3
huf 200’000 salary huf 150’000 salary

huf 300’000 salary

2018

2019 2018 2019 2018

2019

Salary

200’000

200’000

150’000

150’000

300’000

300’000

Dividend

5’000’000

5’000’000

5’000’000

5’000’000

5’000’000

5’000’000

Minimum salary (assumption)

150’000

150’000

150’000

150’000

150’000

150’000

 

Taxes on salary

 

Social security tax on salar

19,50%

19,50%

19,50%

19,50%

19,50%

19,50%

tax/month

39’000

39’000

29’250

29’250

58’500

58’500

6 months’ tax

234’000

234’000

175’500

175’500

351’000

351’000

Health tax

7,00%

7,00%

7,00%

7,00%

7,00%

7,00%

tax/month

14’000

14’000

10’500

10’500

21’000

21’000

6 months’ tax

84’000

84’000

63’000

63’000

126’000

126’000

 

Taxes on dividend

 

Health care contribution

14%

14%

14%

tax amount

700’000

700’000

700’000

threshold

450’000

450’000

450’000

 – less paid tax after salary

-84’000

-63’000

-126’000

threshold

366’000

387’000

324’000

effective tax

366’000

387’000

324’000

Social security tax

19,50%

19,50%

19,50%

tax amount

975’000

975’000

975’000

capped at 24x min.salary

702’000

702’000

702’000

threshold

702’000

702’000

702’000

effective tax

702’000

702’000

702’000

Total tax  

684’000

1’020’000

 

625’500

940’500

 

801’000

1’179’000

It can be seen that the change will create additional tax on dividend.

Further disadvantegous change is that social security tax benefit after employment of protected age persons won’t be available any more.

Personal income tax of fringe benefits

The other significant tax change will appear in personal income taxation. A great bunch of benefit types will get out of the beneficial taxation as from next year.
Will not be any longer tax exempt (the list is incomplete):
– employer’s accomodation support
– mobility purpose accomodation support
– risk insurance
– etc

Additionally only the SZÉP (Szechenyi recreational) card top-ups will belong under preferential taxation, the others will get removed.
Cash as fringe benefit (up to HUF 100’000) also comes to an end from next year.

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